Reckoning

The later 1980s were a period of erratic growth—rapid but unstable. Tigers and sea turtles spurred development throughout the decade: East Asia’s “tiger” economies—Taiwan, Hong Kong, Singapore, and South Korea—paved China’s way in state-led, export-intensive growth. China's “Sea turtles” were the many overseas Chinese who brought capital and knowledge acquired abroad back to their mother country. However, unresolved contradictions lurked in the new political economy of Deng’s China. Frustrations over stalled political reform—enflamed by widespread urban economic grievances over inflation and corruption—erupted in street demonstrations that paralyzed the PRC in the spring of 1989. The Tiananmen crisis would have lasting political repercussions on the cause of democracy—but also unintended economic aftereffects.

Hong Kong Provided China with Capital

Japan Provided Support for Reform

Autocracy and Economic Freedom Brought Growth

Expectations Are the Most Important Growth Factors

Yun-han Chu

Professor of Political Science

Yun-han Chu is Distinguished Research Fellow of the Institute of Political Science at Academia Sinica and professor of Political Science at National Taiwan University. He serves concurrently as president of the Chiang Ching-kuo Foundation for International Scholarly Exchange. Professor Chu received his Ph.D. in Political Science from the University of Minnesota and joined the faculty of National Taiwan University in 1987.

Chu was a visiting associate professor at Columbia University in 1990-1991. He served as director of programs of the Institute for National Policy Research, Taiwan’s leading independent think tank, from 1989 to 1999. Professor Chu specializes in politics of Greater China, East Asian political economy and democratization.

He is a three-time recipient of the Outstanding Research Award from the National Science Council. He currently serves on the editorial board of International Studies Quarterly, Pacific Affairs, China Review, Journal of Contemporary China, and Journal of East Asian Studies and Journal of Democracy. He is the author, co-author, editor or co-editor of eleven books.

Well, first of all, if China was located elsewhere, not in East Asia, but in Latin America, or South Asia, or Africa, it would probably view its record of economic development during the 60s or even 70s as not so bad. Even before the market reform between 49 and 79, the average growth rate was almost 4 percent. By 3rd world standards it's not bad at all. And also, in terms of human development indicators, China did a very impressive job in life expectancy, reducing infant mortality rate, things like that. But, China is surrounded by many, many extremely successful late industrializing economies. The neighboring East Asian economies, they have pursued an export oriented industrialization strategy. So this is kind of a bad practice, exemplified by Taiwan, South Korea, and other countries. So, that also gives China the kind of guidance or encouragement so that, at least the coastal part of China, can follow in the footsteps of Taiwan, South Korea, Hong Kong, and Singapore, to move rapidly into this export-led growth. Lastly, there is a visible transplantation of capital, know-how, and skill from overseas Chinese communities, primarily from Hong Kong and Taiwan. Remember that in the early 90s, which was right after Tiananmen Square incident, most foreign companies, I mean western companies, or even Japanese companies, were very reluctant to go into China. And also, the relationship between China and the west was very contentious right after the Tiananmen Square incident. But the Taiwanese companies, and companies based in Hong Kong, and also some companies owned by overseas Chinese seized the opportunity because at that point they could get the best tax breaks, they could get a very lucrative package from the Chinese authority. So they move in en mass, really en mass. To extend that, virtually all the light manufacturing activity in Taiwan was totally transplanted to China, especially to the Pearl River Delta. And I think that’s a very important transfer not of capital – actually China, itself, has enough domestic savings, it is not really short of working capital -- but knowledge about the foreign market, knowledge about how to organize this supply network, how to do quality control, and how to plug oneself into this global chain of production. I think that’s really very precious for China from the very beginning. And also those people happen to speak the local language. So, they can communicate very effectively with the local cadres, with the local manager, with the local employees. So, I think that actually created a tremendous spillover effect. Many of those successful exporting companies in Guangdong right now, many of them are former employees of Hong Kong or Taiwanese run companies. They work for them for a couple of years and then learn all the tricks, all the know-how, and start setting up their own company. So that preparation is really a key to the success in places like Guangdong, and later on in Jiangsu.